'Big Three' Airlines in for Windfall
By Alman Loong, The Standard | Jan. 11, 2007
The central government is likely to inject at least 10 billion yuan (HK$9.99 billion) into the "Big Three" mainland airlines to lower their gearing and improve their profitability, according to a senior official of Air China.
Air China, China's flagship carrier, told institutional investors in a conference call held by Citigroup on January 8 that the government is likely to inject 10 billion to 20 billion yuan into Air China, China Eastern Airlines and China Southern Airlines. No timetable for the injection was given.
Airlines are one of the seven key industries that the government will control and support.
The "Big Three" carriers experienced a state-ordered consolidation in 2002, and nine smaller airlines were grouped into the three largest. The three airline groups were expected to have a domestic market share exceeding 80 percent after taking over the smaller carriers.
But China Eastern and China Southern have still been troubled by the resumption of price discounting and rising finance costs in the past three years.
Shanghai-based China Eastern posted a 467 million yuan loss and Guangzhou-based China Southern recorded a 3 billion yuan loss in 2005.
Beijing-based Air China has not ruled out a new round of consolidation. There have been some domestic press reports indicating the government's intention to consolidate the "Big Three" airlines into two.
Meanwhile, Air China's net profit for 2006 is expected to hit a record due to lower fuel costs and the rising yuan, the Shanghai Securities News reported, citing Zheng Baoan, Air China's board secretary.
Exchange rate gains are expected to reach 800 million yuan for 2006, Zheng said. Net profit for the carrier was 2.4 billion yuan in 2005.
Zheng also said the carrier and Cathay Pacific Airways will establish a 50-50 cargo joint venture in Shanghai in the first half of 2007 at the earliest.